Transcript: Minneapolis Fed president Neel Kashkari on “Face the Nation,” June 16, 2024

The following is a transcript of an interview with Neel Kashkari, president of the Minneapolis Federal Reserve, on “Face the Nation” which aired June 16, 2024.

MARGARET BRENNAN: And we’re now going to talk to the president of the Minneapolis Federal Reserve, Neel Kashkari, and he joins us from Minneapolis. Neel, last week you all decided to keep interest rates where they are. But in Canada, in Europe, we see promising signs of inflation. And they cut it. What else do you need to see?

NEEL KASHKARI: Well, Margaret, we need more evidence to convince us that inflation is on track to fall back to 2%. The good news is that, as your report just indicated, the job market remains strong. But there’s a really important difference between the US and these other countries. The US economic fundamentals are much stronger than most other advanced economies around the world. Therefore, they face declining inflation and economic weakness. We face slowly declining inflation, but an economic force, and that is what is driving this divergence in monetary policies.

MARGARET BRENNAN: You just said the job market remains strong. The last time you were here, you said that you personally don’t think it’s realistic that we can end this cycle of inflation without costing the job market. We are starting to see unemployment claims increase a little. Do you expect to see more of this in the coming weeks and months?

KASHKARI: It’s certainly possible. The job market performed much better than I expected. I thought that when we raised rates so quickly and aggressively, we would be slamming the brakes harder on the job market. That hasn’t happened yet. When I talk to companies across my region, they are still hiring across the board and still have to compete to find workers. But it’s not the overheated job market we saw a year or two ago. So there may be more cooling yet to come. I hope it will be a modest cooling and then we can return to a more balanced economy.

MARGARET BRENNAN: Bank of America predicts the Fed will cut rates once this year, but will wait until December to do so. What do you think of this prediction?

KASHKARI: You know, I think that’s a reasonable prediction. If you look at what we call the Summary of Economic Projections that my colleagues and I published last week, the average forecast was for a cut this year. It really will depend on the data. And we’re in a very good position right now to take our time, get more data on inflation, get more data on the economy, on the job market, before we have to make any decisions. So we are in a strong position. But if you just said there will be a cut, which is what the median indicated, it would probably be at the end of the year.

MARGARET BRENNAN: We have more to follow on this, Neel, but I’m going to have to take a commercial break and ask you to stay with us through this and we’ll finish on the other side. We’re back.

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MARGARET BRENNAN: And welcome back to “Face The Nation.” We now return to our conversation with the president of the Federal Reserve Bank of Minneapolis, Neel Kashkari. Neel, we hear this frustration from consumers regarding high prices. But there are, for example, so many Americans traveling this weekend that the TSA says it’s their busiest day — the second busiest they’ve seen all year. Credit card balances are rising. If Americans are under pressure, they are not making big cuts. How does this challenge your decision making?

KASHKARI: That’s a great question, Margaret. Many changes have happened since the pandemic. For example, Americans are saving less money, a lower percentage of their income. How long will this last? So we’re looking at what I call a high-pressure economy in some dimensions. But there is also evidence that it is cooling. And we know that the wealthier the people you talked about in your segment, they tend to spend more. At the other end of the distribution, we see people with lower credit scores and their delinquencies are increasing. And so it’s not an entirely good scenario, but we are seeing some underlying resilience. But we also have to pay attention to those who struggle to survive.

MARGARET BRENNAN: The White House has this Council of Economic Advisors and released a report saying that the greater availability right now of dock workers and truck drivers was responsible for 86% of the reduction in inflation since 2022. How much does the supply of workers affect prices? And is this a sign that this high degree of immigration is also really having an impact on inflation?

KASHKARI: Well, there’s no doubt about it: the massive inflation we’ve seen in recent years has largely been driven by supply disruptions. There are not enough workers and supply chains are disrupted. Many of these things have improved a lot. Workers returned, as you just indicated, a lot of immigration, this helped fill many of the vacancies that were open. These, marginally, helped reduce inflation. Now, the long-term net effect of immigration, obviously, immigrants work hard, they contribute to our economy, they also need a place to live, they also need a place to… also to eat. Therefore, they also have demand for goods and services. Therefore, what the net effect on inflation will be in the long term is a little more difficult to assess. But I think right now the fact that many Americans are going back to work and taking jobs that need filling is really helping our economy get back on track. And then we just have to finish the job. We are around the 3% inflation rate now, we need to bring it back to our 2% target.

MARGARET BRENNAN: I know the Fed is apolitical. But we are in an election year and the economy and inflation are at the top of many people’s concerns. You mentioned the impact on housing. Senate Democrats like Elizabeth Warren wrote a letter to President Powell about the housing shortage and urged him to lower interest rates because, she argued, higher borrowing costs are discouraging people from building new homes. On the other side of the political aisle, we have Republican presidential candidate Donald Trump complaining about high mortgage rates and linking them to migrants. Are you concerned that elected officials are actually politicizing the Fed?

KASHKARI: Well, I- you know, people criticize us all the time, the best thing we can do when the political winds are blowing is to focus on our dual mandate goals, which are stable prices and maximum employment. You know, Chairman Powell was asked the same question about housing at his press conference, and he was right to point out that we’ve had a housing shortage for a decade or more. The best thing the Federal Reserve can do is get inflation back to target, and this will allow mortgage rates to return to normal levels. If we were to simply lower interest rates to try to support home ownership right now, it would likely increase house prices and actually not lead to any better affordability. The best thing we can do is do our job, get inflation back to our target, and then, hopefully, the supply side of the economy can step in to build the homes Americans need.

MARGARET BRENNAN: I wonder what you think about what Treasury Secretary Yellen said with her plan to have the largest economies in the G7 give a loan to Ukraine using the interest on the accounts that Russia has abroad, 280 thousand millions of dollars in frozen assets. She is not touching these assets, but receiving the interest. Do you have any concerns about this in terms of the impact on the banking system?

KASHKARI: I’m not worried about the stability of the banking system and what that would mean for the big global banks. I think this is really a political call for the executive branch and its allies around the world to decide. Ultimately, the dollar is the responsibility of the US Treasury Department. And understanding how people would see the dollar, given this type of movement, is up to them to decide. From a banking stability perspective, I don’t see any financial stability concerns that come to mind.

MARGARET BRENNAN: Oh, it’s an interesting plan and we’ll follow it. Neel, it’s always good to have your insights. We’re back.